LCS sold for a song

MASERU – OBTALA Resources Limited has sold its entire shareholding in Lifes’ Comfort Solutions (LCS), one of lesotho’s most recognisable companies, for a mere M1 400.

The deal which will see Obtala offloading its 72.6 percent stake to Rystabelz PTY for the price of a pair of shoes is likely to be completed within the next three months.

The sale comes two years after Obtala, a United Kingdom registered company, paid US$800 000 (M10.9 million) when it acquired the majority stake in LCS.

The M1 400 price tag on LCS could indicate that Obtala was desperate to get out of the retailer which has been struggling for the past few years.

LCS has moved its flagship branch from Pioneer Mall to NHR Mall, where it is selling a limited stock. Its shoe business seems to have been upended while the phone section is virtullay empty.

The electronic department has just a few products and a few beds is what remains of the furniture side. The company has also cut jobs.

Its operation as MultiChoice’s agent in Lesotho has however remained stable.

After Obtala announced its deal with Rystabelz PTY some analysts were quick to point out that the acquisition of LCS in 2014 was ill-advised.

“This was clearly a crap purchase by the former management and Obtala is well shot of it,” said shareprophets, a financial news website, crudely.

Even after getting pittances from Rystabelz PTY Obtala will still have to make good on its committment to pay the full price of US$800000 (M10.9 million), which it said it will do in equal instalment until june next year. There is still a US$225 000 (M3.1 million) balance left on those instalments.

It is not clear why Obtala was so desperate to offload LCS that it could opt for a nominal fee.

The official explanation is that Obtala is disvesting from the retail sector in which it has made forays through its subsidiary, African Home Stores.

Chairman Miles Pelham said the disposal of LCS allows Obtala to focus on its agribusiness in Tanzania and forestry business in Mozambique.

“Management attention and energies can now swing fully to expanding production capacity within these business lines, which is progressing well, whilst avoiding continuing losses from retail operations,” Pelham said.

The other explanation though could be that Obtala has been put off by LCS’s inability to turn a profit.

The company has been hemorrhaging money for the past few years. It made a £750 000 (M13.1 million) loss last year, according to statements of the financial year ended December 31, 2015. This was on a turnover of about £3.125m (M54.6m). It was sitting on net liabilities of about £134 000 (M2.3 million).

The price tag and sudden nature of the deal could be a sign that Obtala is tacitly admitting that it made a mistake when it invested in LCS in October 2014.

At that time Obtala said LCS offered a clear opportunity to improve margins.

An upbeat statement announcing the deal described LCS as a “scalable business model for improved buying power and gross profit optimisation”.

Francesco Scolaro, then chairman of Obtala, weighed in with an optimistic assessment of the deal and its value to the company’s strategy into Africa’s retail market.

“This acquisition represents the final important link in establishing a vertically integrated business chain in Africa that we have been busy establishing in recent years. Also, this acquisition represents an excellent opportunity for us to improve both revenue and margins as we identify new products for the stores and improve the buying process through sourcing directly from Asia,” Scolaro said.

The plan, he said, was to open a chain of outlets under African Home Stores which already had one shop in South Africa.

LSC’s five shops in Lesotho were the beginning of the expansion of African Home Stores, he said.

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